Cat & Joe’s Pig Rig
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Contents
Introduction……………………………………………………………………………………p3
Food Truck business and Traditional Restaurant Comparison…………………………………..p4
Financial Analysis of a Regular Day in Kamloops……………………………………………….p5
Financial and Nonfinancial Analysis of Bullarama Event………………………………………p6
Recommendation…………………………………………………………………………………p7
Introduction
Joe and Cat had been running their food truck, Cat & Joe’s Pig Rig, for several months specializing in pulled pork and southern style barbecue. Their business had been growing steadily as the number of daily customers is increasing, ranged from 75 to 125, with an average number of 100. At the same time, the couple had a chance to promote their food truck business and expand their customer base in Barriere located 70 km north of Kamloops where they were based. However, based on their previous experience, it was not 100% profitable in every event and it was highly possible to lose money because of the increasing fixed cost such as extra fuel cost, donation fee, etc. The report will analyze Cat and Joe’s food truck business, find out the break-even sales volume in their normal day sales and profit projection if they chose to attend the Bullarama event . At last, I will take all conditions into account, financially and non-financially, to recommend Cat and Joe whether to attend this event.
Food Truck business and Traditional Restaurant Comparison
Compared to the traditional restaurants, the food truck business has three main advantages:
First of all, food truck has strong mobility so it was not limited by the unchanged daily customer base. Also, it can move right away if the weather condition affects the business. The mobility makes the business more potential and flexible.
Second, food truck always provides food with affordable price. Unlike customer-service oriented restaurant, people come to food truck can have fair price food really quickly without paying extra tips to servers which is attractive to people who tend to save money.
Third, food truck is significantly cost-saving business opposed to restaurant has huge monthly maintenance budget of the restaurant facilities and property rental.
However, food truck has some disadvantages due to some limitations such as unable to provide variable food options and customer services. Moreover, traditional restaurant usually has systematic procedure to procure raw material to enhance food safety. With the high standard in restaurant, customers may feel more comfortable to eat in the restaurant.
Financial Analysis: Cat and Joe’s daily business in Kamloops
On a Typical day in Kamloops, Cat and Joe need to sell 8 combo sandwiches to make it breakeven. (Yearly fixed Cost/Unit Contribution Margin/180 days)
There is a simple table provided as below:
Combo Unit Price
Unit Variable Cost:40%
Unit Contribution Margin
Yearly Fixed Cost
$10,000
Yearly Break Event Unit Sales Volume
1389 units
Daily Break Evet Unit Sales Volume(180 days)
8 units
Also, break-even point is highly related to the entrepreneurs because it’s the minimum requirement for them to know how many unit sales to make profit.
Assume Cat and Joe want to make after-tax profit for $100,000 yearly, how many sandwiches they need sell each day? The income tax rate in British Columbia is 20%. In other words, they want to make $125,000 before-tax profit (After-tax profit/ 1-tax rate = $100,000/80%) So they need to sell at least 105 sandwiches to make the target profit. (105 = (yearly fixed cost + before-tax profit)/ unit contribution margin)/180 days)
Based on Joe’s daily customer estimation (75-125), I assume at least 75 sandwich combo would be sold in the pessimistic scenario, 100 in realistic, and 125 in optimistic, respectively. Daily fixed cost is the yearly fixed cost divided by 180 operational days to get the $56. After calculated, at the daily pessimistic situation, Cat and Joe at least can make $387.2 after-tax profit.
There is a contribution margin income statement of regular day in Kamloops provided as below:
Cat & Joe Contribution Margin Income Statement for a Daily Sales
Customers
75(Pessimistic)
100(realistic)
125(Optimistic)
Sales
$900.00
$1,200.00
$1,500.00
Less Variable Cost(40%)
$360.00
$480.00